The ACIT, Central Circle-2(3), Ahmedabad V. Shri Kanaiyalal Khimjibhai Thakkar, Ahmedabad

ITA 3364/AHD/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50532 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 24-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-08-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Unexplained investment; Income from undisclosed sources; Peak credit

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI G.D.AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER I.T.A. NO.3364/AHD/2007 (ASSESSMENT YEAR : 2005-06) THE ACIT CENTRAL CIRCLE-2(3) AHMEDABAD VS. SHRI KANAIYALAL KHIMJIBHAI THAKKAR PROP. OF GITA FABRICS DHIRAJ CHAMBERS RAGATI KAPAD BAZAR ASTODIA, AHMEDABAD PAN/GIR NO. : AAPPT 9817 M ( APPELLANT ) .. ( RESPONDENT ) A PPELLANT BY : SHRI B.L. YADAV, SR. D.R. RESPONDENT BY: SHRI ASEEM L. THAKKAR, A.R. DATE OF HEARING : 24/0 8/2011 DATE OF PRONOUNCEMENT : 26/08/201 1 O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WHI CH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-III, AHMEDABAD DA TED 30/05/2007 PASSED FOR ASSESSMENT YEAR 2005-06 AND THE GROUNDS RAISED ARE HEREBY DECIDED AS FOLLOWS: 2. GROUND NO.1 READS AS UNDER: 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.17,85,000/- ON ACCOUNT OF UNACCOUNTED INVESTMENT IN SHARAFI BUSINESS. ITA NO. 3364/AHD/2007 ACIT VS. SH.KANAIYALAL KHIMJIBHAI THAKKAR ASST.YEAR - 2005-06 - 2 - 2.1. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT, 1961 DATED 29/12 /2006 ARE THAT THE ASSESSEE IS IN THE BUSINESS OF TRADING IN SHARES AN D SECURITIES. ASSESSEE IS ALSO IN THE BUSINESS OF SHARAFI LOANS. ASSE SSEE IS A PROPRIETOR OF M/S.GITA FABRICS. IT WAS NOTED BY THE AO THAT A SE ARCH OPERATION WAS CONDUCTED ON M/S.J.P. CONSTRUCTION. AN EMPLOYEE O F THE ASSESSEE MR. ASHISH PATEL HAPPENED TO BE AT THE PLACE OF SEARCH AND POSSESSING A DIARY WHICH WAS ANNEXED AS ANNEXURE-1/1. THE SAID DIARY CONTAINED THE DETAILS OF SHARAFI TRANSACTION CARRIED OUT BY THE A SSESSEE. A STATEMENT U/S.131 OF SHRI ASHISH PATEL WAS RECORDED. HE HAS ADMITTED THAT THE NOTINGS ON THE SAID DIARY WERE IN RELATION TO THE U NACCOUNTED SHARAFI TRANSACTION OF THE ASSESSEE. HE HAS ALSO ADMITTED THAT THE TRANSACTIONS WERE NOTED IN CODED FORM, I.E. 0.50 REPRESENTED A T RANSACTION OF RS.50,000/-. LATER ON, THE ASSESSEE HIMSELF HAS ALSO ACCEPTED VIDE A STATEMENT RECORDED ON 9/2/2005 THAT THE SAID DIARY CONTAINED THE UNACCOUNTED TRANSACTION OF SHARAFI BUSINESS. THE A.O.HAS WORKED OUT A PEAK OF UNACCOUNTED TRANSACTIONS OF RS.25,00,000/- AND A SHOW-CAUSE WAS ISSUED. AS AGAINST THAT THE ADMITTED PEAK INV ESTMENT AS PER THE ASSESSEE WAS RS.7.15 LACS. AFTER CONSIDERING THE R EPLY OF THE ASSESSEE, THE AO HAS REJECTED THE MAIN CONTENTION OF THE ASSE SSEE THAT THE AMOUNT TO THE EXTENT OF RS.9,25,000/- WAS CONSIDERED TWICE WHILE WORKING OUT THE PEAK INVESTMENT. AN AFFIDAVIT WAS ALSO FILED BY THE ASSESSEE, HOWEVER, THAT WAS NOT CONSIDERED BY THE AO ON THE G ROUND THAT SUCH AN AFFIDAVIT HAD NO EVIDENTIARY VALUE. FINALLY, THE IMPUGNED PEAK AMOUNT OF RS.25 LACS WAS TREATED AS INCOME FROM UNDISCLOSE D SOURCES AND TAXED IN THE HANDS OF THE ASSESSEE. THE MATTER WAS CARRI ED BEFORE THE FIRST APPELLATE AUTHORITY. ITA NO. 3364/AHD/2007 ACIT VS. SH.KANAIYALAL KHIMJIBHAI THAKKAR ASST.YEAR - 2005-06 - 3 - 3. BEFORE THE LD.CIT(A), IT WAS REITERATED THAT A P ARTY-WISE DETAILS WERE FURNISHED BEFORE THE AO AND THE OPENING BALANC ES WERE ALSO EXPLAINED WHICH WERE CARRIED FORWARD IN THE RESPECT IVE ACCOUNTS OF THOSE PARTIES. IT WAS ALSO EXPLAINED THAT THERE WERE DOU BLE ENTRIES OF THE SAME AMOUNT WHICH WERE NOT TO BE TAKEN INTO ACCOUNT FOR WORKING OUT THE SAID PEAK INVESTMENT. IT WAS ALSO REAFFIRMED THAT THE APPELLANT HAD OFFERED AN ADDITIONAL INCOME OF RS.7,15,000/- ON THE BASIS OF THOSE ENTRIES WHICH WERE FOUND RECORDED IN THE SAID DIARY. AFTER CONSI DERING THOSE FACTS, IT WAS HELD AS UNDER:- 17. THE APPELLANT HAS CONTENDED THAT THE AMOUNT O F RS.9,25,000/- AS PER PAGE 1 OF THE DIARY (APPEARING AT SR.16 & 17 OF THE A.O.S CHART IN PARA 3 OF HIS ORDER) REPRESE NTED THE SUMMARIZED FORM OF LOANS AND ADVANCES MADE UPTO 8 TH DECEMBER. AFTER THIS DATE, THE APPELLANT HAD MADE PARTY-WISE POSTING OF THE ADVANCES ON THE SUBSEQUENT PAGES OF THE DIARY AND I N THE PROCESS CARRIED FORWARD THE OPENING BALANCES OF THE PARTIES IN THEIR SUBSEQUENTLY OPENED INDIVIDUAL ACCOUNT. THUS IN TH E INDIVIDUAL PARTY-WISE ACCOUNT, ON PAGE 3 UNDER THE NAME MEH, THE ENTRY OF 1/25 IS REFLECTED AND THE ENTRY OF 8 IS REFLECTED O N PAGE 6 OF THE DIARY IN THE SUBSEQUENTLY OPENED PARTY-WISE ACCOUNT UNDER THE NAME PUMP. ALL THE ENTRIES HAVE BEEN CONSIDERED IN THE WORKING OF THE PEAK CREDIT AND E4VEN IN THE CHART P REPARED BY THE A.O. (PARA 3 OF HIS ORDER). THE SAME QUANTUM ON T HE SAME DATE, AS (APPEARING AT SR.NO.16 & 17 OF A.OS CHART) FOR PAGE 1 OF THE DIARY, REAPPEARS IN THE SAME MANNER/QUANTUM/DATE AT SR.NO.19 & 20 OF THE A.O.S CHART FOR PAGE NO.3 & 6 OF THE DIARY. THIS THUS INDICATE THAT THE DECODED ENTRY OF 8/- AND OF 1/25 I.E. RS.9,25,000/- HAS BEEN CONSIDERED TWICE WHILE WORKING OUT THE PE AK INVESTMENT. IT IS APPARENT THAT THE INITIAL ENTRY OF 8/- AND 1/ 25 FOR 1/12 (DATE) ON PAGE 1 OF DIARY WAS INCORPORATED/REFLECTED IN TH E ENTRIES ON PAGE 3 AND ON PAGE 6 OF THE SEIZED DIARY AND SO THE RE HAS BEEN A DUPLICATION IN THE PEAK INVESTMENT AS WORKED OUT BY THE A.O. ITA NO. 3364/AHD/2007 ACIT VS. SH.KANAIYALAL KHIMJIBHAI THAKKAR ASST.YEAR - 2005-06 - 4 - THERE IS CORRELATION BETWEEN THE ENTRIES (WITHOUT I NDIVIDUAL NAMES) ON PAGE 1 OF THE DIARY AND THE ENTRIES (WITH NAMES OF RECIPIENTS) ON PAGE 3 AND 6 OF THE DIARY. ON PAGE 1 IT IS THE SUM TOTAL OF THE ADVANCES AND ON PAGE 3/6 IT IS THEIR D ESTINATION. THE ASSESSEES CONTENTION THAT THE AMOUNT OF RS.9,25,00 0/- HAS BEEN CONSIDERED TWICE IN WORKING OUT UNACCOUNTED PEAK IS THEREFORE UPHELD. 4. FROM THE SIDE OF THE REVENUE, LD.DR MR.B.L. YADA V APPEARED AND FROM THE SIDE OF THE ASSESSEE LD.AR MR. ASEEM THAKK AR APPEARED. THEY HAVE RESPECTIVELY SUPPORTED THE ORDERS OF AO AND CI T(A). 5. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE VIEW THAT THE AO WAS NOT CORRECT IN IGNORING THE SAID FA CT THERE WAS A REPETITION OF THE AMOUNT OF RS.1,25,000/- AND RS.8, 00,000/- WHICH WERE DOUBLY TAKEN INTO ACCOUNT WHILE COMPUTING THE ALLE GED PEAK AMOUNT OF RS.25,00,000/-. THE LD.CIT(A) HAS GIVEN A FINDING ON FACTS THAT THE APPELLANT HAD DEMONSTRATED A PARTY-WISE POSITION OF THE ADVANCES ON THE SUBSEQUENT PAGES OF THE DIARY AND THROUGH THOSE POS TINGS THE SAID POSITION WAS RECONCILED. HE HAS ALSO GIVEN A FINDI NG AFTER DUE CONSIDERATION OF THE FACTS OF THE CASE THAT THE IMP UGNED TOTAL AMOUNT OF RS.9,25,000/- WAS CONSIDERED TWICE WHILE WORKING OU T THE PEAK INVESTMENT. IN VIEW OF THOSE FACTUAL FINDINGS THAT THERE WAS A CORRELATION BETWEEN THE ENTRIES IN THE INDIVIDUAL ACCOUNTS OF T HE PARTIES AND THAT THERE WAS A DUPLICATION OF THE SAID AMOUNT WHILE WORKING OUT THE PEAK INVESTMENT, WE ARE OF THE VIEW THAT SUCH FINDINGS O N FACTS NEED NOT TO BE DISTURBED SPECIALLY WHEN THE REVENUE HAS NOT PLACED ANY CONTRARY MATERIAL BEFORE US. WE HEREBY AFFIRM THE FINDINGS OF THE LD.CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. ITA NO. 3364/AHD/2007 ACIT VS. SH.KANAIYALAL KHIMJIBHAI THAKKAR ASST.YEAR - 2005-06 - 5 - 6. GROUND NO.2 READS AS UNDER:- 2. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.7,10,000/- ON ACCOUNT O F UNACCOUNTED INCOME FROM UNDISCLOSED SOURCES. 7. IT WAS NOTICED BY THE AO THAT IN THE SAID DIARY, A SUM OF RS.7,10,000/- WAS SHOWN AS RECEIPT ON 17 TH JUNE-2004 WITH A NOTING JP. IN A STATEMENT RECORDED ON 24/02/2005, IT WAS EXPLA INED BY THE ASSESSEE THAT JP REFERRED TO ONE M/S.J.P. SHROFF. HOWEVER , PROPRIETOR OF M/S.J.P.SHROFF, MR. PRAVIN T.KOTAK HAVE DENIED OF M AKING ANY PAYMENT TO ASSESSEE. AFTER CERTAIN INVESTIGATION, AO WAS OF THE VIEW THAT THE SAID AMOUNT WAS IN FACT THE INITIAL CAPITAL EMPLOYE D BY THE ASSESSEE FOR SHARAFI LOAN BUSINESS. THE SAME WAS ACCORDINGLY T AXED AS UNDISCLOSED INITIAL CAPITAL EMPLOYED IN THE UNACCOUNTED BUSINES S OF SHARAFI LOAN. THE SAID ADDITION WAS CHALLENGED BEFORE THE FIRST APPE LLATE AUTHORITY. 8. THE LD.CIT(A) HAS EXAMINED THE ENTRIES OF THE SA ID DIARY AND CORRELATED WITH THE PEAK INVESTMENT COMPUTED BY THE AO. LD.CIT(A) HAS ALSO EXAMINED THE TOTAL INCOME DECLARED BY THE ASSESSEE AND THE AMOUNT SURRENDERED IN THE SAID DECLARATION. THER EAFTER, HE HAS CONCLUDED AS UNDER. 16. THE CONTENTIONS/OTHER DETAILS ON RECORD WERE CAREFULLY CONSIDERED. IN RESPECT OF THE ADDITION OF RS.7,10, 000/-, DISCUSSED BY THE A.O. IN PARA 4 OF HIS ORDER, THE A.O. HAS MA DE THE ADDITION ON THE GROUND THAT SHRI PRAVIN KOTAK, PROPRIETOR OF M/S. J.P. ITA NO. 3364/AHD/2007 ACIT VS. SH.KANAIYALAL KHIMJIBHAI THAKKAR ASST.YEAR - 2005-06 - 6 - SHROFF HAS CONTRADICTED THE VERSION OF THE APPELLAN T THAT IT WAS RECEIVED FROM HIM. THE A.O. THEREFORE FELT THAT TH IS AMOUNT CONSTITUTED THE INITIAL CAPITAL, THE SOURCE OF WHIC H HAS NOT BEEN EXPLAINED. IT IS SEEN THAT ON PAGE 24 OF THE SEIZE D DIARY THE AMOUNT WRITTEN IN CODES IS UNDER THE LABEL J.P.., ON THE LEFT SIDE, I.E. REPRESENTING RECEIPTS. THUS AS PER THE CODED ENTRIES, THE AMOUNT HAS BEEN RECEIVED AS RS.2,00,000/- ON 17/6, RS.10,000/- AND RS.5,00,000/- (NO DATE MENTIONED). THESE ENTRE IS IN ITSELF INDICATES ITS RECEIPT FROM J.P. WITH WHOM THE AP PELLANT WAS ASSOCIATED AND AT WHOSE PREMISES, HIS EMPLOYEE ASHI SH WAS FOUND AT TIME OF SEARCH. IT IS PERTINENT TO NOTE THAT TH E AMOUNT HAS ALREADY BEEN OFFERED AND CONSIDERED EVEN BY THE A, O (S. NO.1-3 OF HIS CHART) WHILE COMPUTING THE PEAK INVESTMENT. I N THIS SITUATION, THE SEPARATE ADDITION IS NOT JUSTIFIED, BOTH ON FAC TUAL AND LEGAL GROUNDS. THE ADDITION OF RS.7,00,000/- IS THEREFOR E DELETED. 9. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE FIND NO FALLACY IN THE SAID FINDINGS OF THE CIT(A) WHICH WERE PRON OUNCED AFTER DUE APPRECIATION OF FACTS OF THE CASE. LD.CIT(A) HAS E XAMINED THE FACTS IN RESPECT OF THE CALCULATION OF PEAK INVESTMENT AND T HEREUPON GIVEN A FINDING THAT THE AO HAD GONE WRONG TO AGAIN ADD THE AMOUNT OF RS.7,10,000/-. WE HEREBY AFFIRM THE FINDING OF THE CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 10. GROUND NO.3 READS AS UNDER: 3. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS O F THE CASE IN RESTRICTING THE ADDITION OF RS.2,36,642/- TO RS.16, 000/- ON ACCOUNT OF UNACCOUNTED INTEREST INCOME. ITA NO. 3364/AHD/2007 ACIT VS. SH.KANAIYALAL KHIMJIBHAI THAKKAR ASST.YEAR - 2005-06 - 7 - 11. THE OBSERVATION OF THE AO WAS THAT SINCE THE AS SESSEE WAS ENGAGED IN THE BUSINESS OF SHARAFI LOANS, THEREFORE , IT WAS QUITE NATURAL TO CHARGE INTEREST ON THE ADVANCES OR LOANS MADE IN TH E COURSE OF SHARAFI TRANSACTION. AS PER THIS STATEMENT, RATE OF INTE REST CHARGE VARIED FROM 1% PER MONTH TO 2% PER MONTH. THE AO HAS GIVEN A W ORKING OF INTEREST WHICH ACCORDING TO HIM WOULD HAVE BEEN RECEIVED BY THE ASSESSEE AND AS PER THAT WORKING INTEREST INCOME OF RS.2,36,642/- W AS TAXED IN THE HANDS OF THE ASSESSEE. THE SAID ADDITION WAS CHALLENGED BEFORE THE FIRST APPELLATE AUTHORITY. 12. THE LD.CIT(A) HAS DECIDED THE ISSUE IN THE FOLL OWING MANNER:- 20. IN THE LAST GROUND OF APPEAL, I.E. INTEREST E ARNED @ 18% ON THE UNACCOUNTED SARAFI ADVANCES HAS NOT BEEN CONTES TED PER SE, IT IS HOWEVER PLEADED THAT THIS INTEREST MAY BE BASED ON THE QUANTUM OF HITHERTO UNACCOUNTED SARAFI TRANSACTIONS OF RS.7 ,15,000/-. INTEREST ON THE AMOUNTS ADVANCED OUT OF IT, AS PER THE DETAILS OF THE ENTRIES APPEARING IN THE DIARY COMES TO RS.16,000/- APPROX. @ 18%. AS SUCH THE ADDITION OF RS.2,36,642/- MADE BY THE A.O. IS RESTRICTED TO RS.16,000/-. THE RELATED GROUND OF A PPEAL IS DECIDED ACCORDINGLY. 13. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE HAVE NOTICED THAT LD.CIT(A) HAS GIVEN THE PART RELIEF MERELY ON AN APPROXIMATION. ON CAREFUL PERUSAL OF THE ORDER OF THE LD.CIT(A), WE H AVE NOTICED THAT THERE WAS HARDLY ANY DISCUSSION ON THIS ISSUE SPECIALLY W HEN THE AO HAS GIVEN A CALCULATION IN THE TABULAR- FORM ON PAGE NO.12 OF THE ASSESSMENT ORDER FOR WORKING THE IMPUGNED INTEREST INCOME OF RS.2,36 ,642/-. IF THE LD.CIT(A) WAS OF THE VIEW THAT THE UNACCOUNTED SHAR AFI TRANSACTION WAS ITA NO. 3364/AHD/2007 ACIT VS. SH.KANAIYALAL KHIMJIBHAI THAKKAR ASST.YEAR - 2005-06 - 8 - ONLY OF RS.7,15,000/-, EVEN THEN HE OUGHT TO HAVE A PPLIED THE ADMITTED INTEREST RATE OF 18% PER ANNUM ON THE SAID AMOUNT. BUT IGNORING THOSE ADMITTED FACTS, HE HAS SAID THAT A SUM OF RS.16,000 /- WAS THE INTEREST TO BE ESTIMATED ON THE AMOUNT ADVANCED BY THE ASSESSEE . WE ARE NOT CONVINCED WITH THE SAID REASONING OF THE LD.CIT(A) AND AFTER NOTING THE OBJECTION RAISED FROM THE SIDE OF THE REVENUE, WE D EEM IT PROPER TO REFER THIS GROUND BACK TO THE FILE OF CIT(A) TO DECIDE DE NOVO AS PER LAW. WE HEREBY DIRECT TO GIVE A CATEGORICAL FINDING IN R ESPECT OF THE WORKING GIVEN BY THE ASSESSING OFFICER, SO THAT THE CORRECT UNDISCLOSED INCOME TO BE TAXED IN THE HANDS OF THE ASSESSEE. WE HOLD AC CORDINGLY. THIS GROUND OF THE REVENUE MAY BE TREATED AS ALLOWED BUT FOR A STATISTICAL PURPOSES. 14. IN THE RESULT, THE APPEAL OF THE REVENUE I S TREATED AS PARTLY ALLOWED BUT FOR STATISTICAL PURPOSES. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 26 / 8 /2011. SD/- SD/- ( G.D. AGARWAL ) ( MUKUL KR. SHRAWAT ) VICE PRESIDENT (AZ) JUDICIAL ME MBER AHMEDABAD; DATED 26/ 8 /2011 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPA RTMENT. 3. THE CIT CONCERNED. 4. THE LD. CIT(A PPEALS)-III, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD